n-04-80.pdf

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Part III - Administrative, Procedural, and Miscellaneous

Temporary Rules Under Sections 6111 and 6112

Notice 2004-80

The purpose of this notice is to alert taxpayers to recent amendments to §§ 6111,
6112, and 6708 of the Internal Revenue Code. The notice announces that the Internal
Revenue Service and the Treasury Department will issue regulations under § 6111 and
amend the regulations under § 6112. The regulations under § 6111 and § 6112 will
apply to transactions with respect to which material aid, assistance, or advice is
provided after October 22, 2004. The Service and Treasury also will issue regulations
under § 6708 that will apply to written requests made after October 22, 2004, for
investor lists required to be maintained under § 6112. This notice provides guidance for
material advisors who are required to comply with §§ 6111 and 6112, as amended, and
who are potentially subject to penalty under § 6708, as amended. This notice also
invites comments from the public regarding rules and standards relating to §§ 6111,
6112, and 6708, as amended.

BACKGROUND AND PRIOR LAW

Prior to the recent amendments, § 6111(a) required an organizer of a tax shelter
to register the shelter with the Secretary not later than the day on which interests in the
shelter were first offered for sale. Under former § 6111(c), a tax shelter was defined as
any investment with respect to which any person could reasonably infer from the
representations made in connection with the offering for sale of interests that the tax
shelter ratio for any investor as of the close of any of the first five years ending after the
investment was offered for sale may have been greater than two to one and which was:
(1) required to be registered under federal or state securities laws; (2) sold pursuant to
an exemption from registration requiring the filing of a notice with a federal or state
securities agency; or (3) a substantial investment (the aggregate amount which may
have been offered for sale exceeded $250,000 and the expected involvement of at least
five investors). Under former § 6111(d), other entities, plans, arrangements or
transactions could be treated as tax shelters for purposes of former § 6111(a) if: (1) a
significant purpose of the structure was the avoidance or evasion of federal income tax
for a direct or indirect corporate participant; (2) the offer was made under conditions of
confidentiality; and (3) the tax shelter promoter may have received fees in excess of
$100,000 in the aggregate.

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THE AMERICAN JOBS CREATION ACT OF 2004

The American Jobs Creation Act of 2004, P.L. 108-357, 118 Stat. 1418, (the Act)
was enacted on October 22, 2004. Section 815 of the Act amended § 6111 to require
each material advisor with respect to any reportable transaction to make a return (in
such form as the Secretary may prescribe) setting forth: (1) information identifying and
describing the transaction; (2) information describing any potential tax benefits expected
to result from the transaction; and (3) other information as the Secretary may prescribe.
Section 6111(a), as amended, provides that the return must be filed not later than the
date specified by the Secretary. Section 6111(b)(1) defines a material advisor and
includes a requirement that the material advisor receive certain threshold amounts of
gross income that the Secretary may prescribe.

The amendments to § 6111 authorize the Secretary to prescribe regulations that
provide: (1) that only one person shall be required to meet the requirements of
§ 6111(a) in cases in which two or more persons would otherwise be required to meet
such requirements; (2) exemptions from the requirements of § 6111; and (3) rules as
may be necessary or appropriate to carry out the purposes of § 6111.

Section 815 of the Act also amended § 6112 to provide that each material
advisor (as defined in new § 6111) with respect to any reportable transaction is required
to maintain a list (in such manner as the Secretary may by regulations prescribe)
identifying each person with respect to whom the advisor acted as a material advisor
with respect to the transaction, and containing other information as the Secretary may
by regulations require.

Section 815 of the Act is effective for transactions with respect to which material
aid, assistance, or advice is provided after October 22, 2004, the date of enactment of
the Act.

Section 817 of the Act amended § 6708 to impose a penalty on a material
advisor who fails to make available, within 20 business days after the date of a written
request by the Secretary, a list required to be maintained under § 6112(a). The new
amount of the penalty is $10,000 for each day after the 20th day that the material
advisor fails to provide the list. Section 6708(a)(2) provides a reasonable cause
exception to the imposition of the penalty under § 6708. Section 817 of the Act is
effective for requests made after October 22, 2004, the date of the enactment of the
Act.

INTERIM PROVISIONS

The Service and Treasury intend to issue regulations providing rules under
§§ 6111, 6112, and 6708, as amended. However, because the amendments to
§§ 6111, 6112, and 6708 currently are effective, the Service and Treasury are providing
the following interim rules implementing the requirements of §§ 6111, 6112, and 6708,
as amended, until the Secretary prescribes regulations. The interim rules as adopted

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by this notice incorporate, in part, rules in the current regulations under §§ 6011, 6111,
and 6112. These interim rules will apply until further guidance is issued.

A. Disclosure by Material Advisors Under § 6111
As indicated above, section 815 of the Act amended § 6111 to require that each
material advisor with respect to any reportable transaction make a return setting forth
information identifying and describing the transaction and any potential tax benefits
expected to result from the transaction no later than the date specified by the Secretary.
Until further guidance is issued, the definition of a reportable transaction, the definition
of a material advisor, and the requirements for filing a return under § 6111 are as
indicated below.

1. Definition of Reportable Transaction

For purposes of new § 6111(a), a “reportable transaction” is defined in
§ 1.6011-4(b) of the Income Tax Regulations. In addition, the rules in
§ 301.6112-1(b)(2) and (c)(2) (without regard to provisions relating to a transaction
required to be registered under former § 6111) will apply for purposes of determining
whether a transaction is a reportable transaction with respect to a material advisor.
Determinations made by public guidance pursuant to § 1.6011-4(b)(8) that a transaction
will not be considered a reportable transaction or will be excluded from a category of
reportable transactions, including Rev. Proc. 2004-65 (relating to transactions with
contractual protection), Rev. Proc. 2004-66 (relating to loss transactions), Rev. Proc.
2004-67 (relating to transactions with a significant book-tax difference), and Rev. Proc.
2004-68 (relating to transactions with a brief asset holding period) also will apply for
purposes of new §§ 6111 and 6112.

2. Definition of a Material Advisor

For purposes of new § 6111, a “material advisor” is defined in § 301.6112-1(c)(2)
of the Procedure and Administration Regulations. The existing rules under
§ 301.6112-1(c)(2), (c)(3), and (d) (without regard to the provisions relating to a
transaction required to be registered under former § 6111), including the minimum fee
amounts for listed transactions under § 301.6112-1(c)(3)(ii), will apply for purposes of
determining whether a person is a material advisor.

In the case of a transaction with a significant book-tax difference described in
§ 1.6011-4(b)(6), a person will be considered a material advisor with regard to the
transaction for purposes of §§ 6111 and 6112 only if the person who makes a tax
statement described in § 301.6112-1(c)(2)(iii)(E) also makes a statement, oral or
written, that relates to the financial accounting treatment of the item(s) that gives rise to
a significant book-tax difference described in § 1.6011-4(b)(6).

3. Filing of Return Under § 6111

Until Form 8264, Application for Registration of a Tax Shelter, is revised, or a
successor form is issued, for purposes of new § 6111(a), a material advisor required to
file a return with respect to a reportable transaction must complete Form 8264 in the

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following manner. A material advisor is required to complete only Parts I (except item
1(b)), IV, and V of Form 8264. In completing Form 8264, the form and instructions are
to be read to apply, by substituting: (1) “reportable transaction” each place “tax shelter”
or “confidential corporate tax shelter” appears; (2) “material advisor” each place
“organizer” or “principal organizer” appears; and (3) “Date the material advisor became
a material advisor with respect to the reportable transaction” in place of “Date an
interest in the tax shelter was first offered for sale” in Part I, line 7, of the form. In Part
IV, fees must be determined by applying the rules in § 301.6112-1(c)(3)(iii) instead of
the instructions. In Part V, the material advisor must identify the type of reportable
transaction under § 1.6011-4(b) that is being disclosed, and describe the facts of the
transaction and the potential tax benefits expected to result from the transaction. Form
8264 must be signed under penalties of perjury. The form must be sent to the Internal
Revenue Service Center, Ogden, UT 84201.

A material advisor may file a single Form 8264 for substantially similar
transactions. A material advisor is required to supplement information disclosed on
Form 8264 if the information provided is no longer accurate, or if additional information
that was not disclosed on Form 8264 becomes available.

In addition, the following rules contained in § 301.6111-1T will apply: (1) Q&A-3
and 50 regarding representations made to investors about disclosures under § 6111; (2)

Q&A-38 and 39 regarding designation agreements; (3) Q&A 49 regarding timely
mailing; and (4) Q&A-51 through 57 regarding the furnishing of registration numbers and
the reporting requirement on Form 8271, Investor Reporting of Tax Shelter Registration
Number, or any successor form.

4. Due Date of Return Under § 6111

Section 6111(a), as amended, provides that the Secretary may specify the date
the return must be filed by a material advisor. A material advisor, as defined in
§ 301.6112-1(c)(2), who is required to file a return under § 6111 must file the return
within 30 days after the date on which the person becomes a material advisor.
However, if a person becomes a material advisor after October 22, 2004, and on or
before December 31, 2004, that material advisor must file the return before February 1,
2005. If a person is required to disclose a reportable transaction under the provisions of
§ 6111, as amended, and the person has registered the transaction under former
§ 6111 prior to October 22, 2004, that registration will satisfy the disclosure
requirements for the new provisions in § 6111, provided that the material advisor
amends the previous registration to reflect any information required under this notice.

B. Maintenance of Lists by Material Advisors Under § 6112

Section 815 of the Act amended § 6112 to provide that each material advisor (as
defined in new § 6111(b)) with respect to any reportable transaction is required to
maintain a list identifying each person with respect to whom the advisor acted as a
material advisor with respect to the transaction. Section 817 of the Act amended
§ 6708 to impose a penalty on a material advisor who fails to make a list available upon
written request within 20 business days after the date of the request.

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For purposes of new § 6112, the existing rules under § 301.6112-1 (without
regard to the provisions relating to a transaction required to be registered under former
§ 6111) relating to the preparation, maintenance, retention, and furnishing of lists will
apply to material advisors required to maintain lists with respect to a reportable
transaction.

For purposes of former § 6112, § 301.6112-1 will continue to apply to organizers
and sellers (defined as material advisors in § 301.6112-1(c)(2)) who are required to
maintain lists under former § 6112. Consequently, an organizer or seller under former
§ 6112 must continue to maintain any list described in § 301.6112-1(e) for the
seven-year period described in § 301.6112-1(f) even if such period expires after
October 22, 2004.

For purposes of § 6708, the 20 business-day period within which a person must
provide the list required to be maintained under § 6112 shall begin on the first business
day following the earlier of the date that the IRS: (1) mails a request for the list by
certified or registered mail to the last known address of the material advisor required to
maintain the list or (2) hand-delivers the written request in person. Business days
include every calendar day other than Saturdays, Sundays, or legal holidays. For
purposes of this notice, “legal holiday” shall have the same meaning provided in § 7503.

REQUEST FOR COMMENTS

The Service and Treasury intend to issue regulations implementing the
requirements of §§ 6111, 6112, and 6708, as amended. The Service and Treasury
continue to balance the benefits to the government of early and complete disclosure
with the burden imposed on taxpayers and their representatives. The Service and
Treasury invite interested persons to submit comments regarding the requirements of
§§ 6111, 6112, and 6708, including comments on the definition of material advisor and
comments on ways to reduce taxpayer burden and to improve disclosure. Comments
on guidance under §§ 6111, 6112, or 6708, may be submitted to: CC:PA:LPD:PR
(NOT-155984-04), Room 5203, Internal Revenue Service, POB 7604, Ben Franklin
Station, Washington, DC 20044. Submissions also may be hand delivered Monday
through Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (NOT-
155984-04), Courier=s Desk, Internal Revenue Service, 1111 Constitution Avenue NW.,
Washington, DC. Alternatively, taxpayers may submit electronic comments directly to
the IRS e-mail address: notice.comments@irscounsel.treas.gov
.

EFFECTIVE DATE
This notice is effective for transactions with respect to which material aid,
assistance, or advice is provided after October 22, 2004. This notice is also effective for
written requests made after October 22, 2004, for investor lists required to be
maintained under § 6112.

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DRAFTING INFORMATION
The principal author of this notice is Tara P. Volungis of the Office of the
Associate Chief Counsel (Passthroughs & Special Industries). For further information
regarding this notice contact Ms. Volungis at (202) 622-3080 (not a toll free call).